News and Thoughts

Player Contracts and Unions in the LCS

This is an article I wrote in December of 2013 but that, for various reasons, I never published. The news underlying it is well in the past now, but the interesting issues that news presented are not. It’s not my intention to dreg up the problems associated with this again, only to engage in a fun thought experiment about how contracts and labor law work or may someday work in the world of professional competitive video gaming. I’m presenting the article as I originally wrote it, complete with “recentlys” with respect to the ancient and “coulds” with respect to the since-decided. Now, take a trip with me down memory lane into the forgotten mists of… several months ago…

A Contentious Contract Clause

Recently Ongamers revealed that Riot Games, maker of League of Legends (aka LoL) was requiring players in the League of Legends Championship Series (aka LCS) not to stream themselves playing certain other games (contract reproduced in relevant part here). This was later confirmed by RiotMagus, Riot’s Director of eSports. A couple days and a public outcry later, RiotMagus announced a reverted policy that allowed LCS players to stream any game they want as long as they don’t accept sponsorship from other game companies to promote other games. But in that couple days there was quite a bit of public discussion about the pre-update anti-streaming-other-games contracts. So let’s talk about them!

Three legal issues jump out most to me here. First, could Riot really prohibit players from streaming certain games? Second, what could happen if a player decided to stream a banned game anyway? And third, can Riot even place restraints like this on players in the first place?

Contract Enforceability

Let’s talk quickly and generally about what’s required for a contract to be legal and enforceable. There must be consent, which requires an offer and an acceptance of that offer. There must be consideration, that is, some benefit that the parties bargain for and that induces them to agree. All the parties to the contract must be capable of contracting, meaning they must be old enough, not mentally disabled, and so on. And lastly, the purpose of the contract can’t be illegal or against public policy. Sorry, contracts with hitmen are not enforceable.

As far as I know, there’s no reason to suspect that any of consent, consideration, or capacity were lacking. The players were doubtless made offers that they accepted, they get benefits in the form of money and e-fame, and they’re smart people required to be at least 17 years old. The only question, then, is whether the purpose was legal and in line with public policy!

Lemme quote the court in Copeland v Baskin Robbins USA: “Persons are free to contract to do just about anything that is not illegal or immoral.” Literally if the contract doesn’t break an actual law or the policy of an actual law or require crazy things like marriage, then you’re good.

But depending on how the no-streaming-other-games contract is viewed, it may in fact be against the law! Some commentators have suggested that the contract seems like a covenant not to compete. Covenants not to compete, also known as non-compete agreements, are contracts that prohibit one party from competing with the other, whether directly or while engaged with someone else.

In California, where Riot is located and where its deals are governed, contracts in which a party promises not to compete are mostly illegal under the Business and Professional Code §16600. The rule itself is about as short and easy as a statute gets: “Every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” There’s no narrow restraint or general reasonableness consideration. It applies to employees and to independent contractors alike engaged in any kind of lawful work. There are some exceptions, but they’re only about selling and dissolving businesses, not anything that would be relevant here.

Could Riot’s streaming restrictions be considered promises not to compete and therefore illegal in California? It’s true that the anti-streaming-other-games provision prevents players from promoting games that compete with Riot’s League of Legends. In fact, it also seems to prevent players from competing professionally in any other game, since playing professionally would almost certainly include playing on a stream. In that sense, it is a covenant not to compete.

But the author of that Forbes article is right when he says that competitive gaming and video game streaming are both so new that no court has yet decided whether a prohibition on streaming other games counts as a non-compete agreement. Without guidelines from a previous court case to help us, it’s really hard to know if the contract violates Bus & P C §16600.

I’m not convinced about which side to take on this. But I feel like it’d be harder to argue that this is not a non-compete than that it is, and that makes me favor the idea that it is. I dunno, though. Lawyering in competitive gaming and new media is kinda nice. I mean hey, if you don’t know the answer to something, no big deal, it’s cool! Nobody does!

But meh, I’m just gonna pretend that the contract is good. I’d like to discuss about what happens if it’s breached.

Penalty for Breach of Contract

Let’s say a player decides to breach the contract by streaming a prohibited game anyway. What kind of remedies would be available to Riot, the aggrieved party in this scenario, against such a naughty player?

Most cases of breach of contract can be settled with money damages, aka legal remedies. Damages are court ordered payments made by whoever broke the contract to whoever didn’t. Sometimes, though, legal remedies don’t quite cut it. In those cases, plaintiffs can instead seek what are known as equitable remedies. Equitable remedies come in different flavors, but the most common forms are injunctions, which either force or prevent some action by the breacher, and specific performance, where the naughty side is required to live up to whatever it was supposed to do under the contract in the first place.

Personal service contracts like the ones at issue here usually allow only for legal remedies; injunctions and specific performance aren’t usually available, since courts tend not to want to tell people what to do with their bodies. But there is an exception, and it may apply here.

Under California Civil Code §3423(e), injunctions are allowed if the services “of a special, unique, unusual, extraordinary, or intellectual character, which gives it a peculiar value, the loss of which cannot be reasonably or adequately compensated in damages” and if the contract is in writing and meets certain financial criteria, like being worth at least $9k for the first year, $12k for the second year, and $15k for the third through seventh years. Anyone whose services fit such a description can be prevented from performing for anyone other than the party they originally contracted with.

Now, it may not be realistic to expect Riot to pursue a lawsuit against a pro LoL player for streaming Fat Princess; a more likely scenario may be a mere dismissal from a team or from LCS play, depending on how the contract is written. But if it did, pursuing an injunction under §3423(e) might be a good course of action.

In the last season of the LCS, season 3, the rules required each team to distribute a minimum of at least $12,500 to each of its starting players per split, which is half of the total season. I’m not sure whether the rules will change in season 4, but even if they do it’s unlikely that they’ll be overly different. That means that an LCS player who’s only around for one split will already qualify for the financial minimum listed for the first two years in §3423(e). If a court were to find that such a player had a written contract to provide a service of a special, unique, unusual, extraordinary, or intellectual character, then this law would apply.

So if a star LCS player were to stream a prohibited game, Riot could rely on §3423(e) to prohibit that player from continuing to do so. And, if it can show that the player’s streaming hurt its finances or profits, it might still be able to get legal damages as well.

Restraints on Players

In defending the original contracts, RiotMagus justified his company’s requirements in part by saying that Riot wants League of Legends to be a legitimate sport with a professional setting. Just as you wouldn’t see an NFL player promoting the Arena Football League, he claims, you shouldn’t see a League player promoting Dota2 either.

In point of fact, it’s actually not uncommon to see MLB players wearing NBA hats or vice versa. And the wisdom of barring a video game Bo Jackson or Neon Deion from playing multiple esports may be up for debate. Bo Knows… how to play only one video game at a time due to contractual constraints!

But instead of dwelling on that, let’s talk about the legality of placing restraints on players in the first place. Traditional sports leagues have to deal with a significant body of contractual, statutory, and regulatory rules regarding restraints on players. In this article, I’ll briefly address two of these areas: labor law and antitrust law.

Player Unions in Sports

The National Labor Relations Act (NLRA) gives employees the right to organize into a union, engage in collective bargaining with their employer, and take action for mutual aid and protection like going on strike and so on. A union that wins a majority of support from the employees at a workplace is thereby certified as the exclusive bargaining agent for all the employees there.

While employers may come to unilateral decisions over at least some of their policies regarding employees, there are also mandatory subjects of bargaining, including wages, hours, and other terms and conditions of employment, that must be discussed with the union.

All major American professional sports leagues have a corresponding players’ association. The NHL has the NHLPA, the NBA has the NBPA, and so on. These unions didn’t come about easily. They developed slowly over many decades, gradually working for more power for the players. As a result, modern major sports are controlled by collective bargaining agreements struck between the owners in the form of the leagues and the players in the form of the players’ associations.

This is not the case in the League of Legends Championship Series. There’s no players’ union or collective bargaining agreement, no mandatory subjects of bargaining. There are contracts, but they’re signed between players and teams, between teams and Riot, and between Riot and the players. Players can bargain for better ones, but not as part of a certified union.

If there were such a union, it could force Riot to discuss terms and conditions of employment. Maybe that includes a rule prevents the players from streaming other games, maybe not. That’s hard to know.

In any case though, again, there’s no union, and it’s hard to see that changing. There are practical reasons for that: it’s hard to see young pro players being willing to go on strike to set up a union during the few years of competitive playing time available to them and in the face of so many other players being willing to take their places. But there are also legal ones.

The NLRA applies only to employees, not to independent contractors. Employers are under no obligation to bargain with independent contractors in the way they’re required to with employees. And guess what? LCS players are independent contractors. In fact, the Season 3 LCS rules take pains to point out that players are not and should not be considered Riot employees. The result is that Riot has no legal obligation to bargain with players in the LCS.

That’s not to say that a union is impossible or illegal. In fact, every now and then there’s talk in the professional golfing world of starting a real union (technically the PGA Tour is the players, but that’s not really true in practice). If a union gained the membership of every single League of Legends player both professional and amateur, then Riot couldn’t help but dealing with it.

But barring that, it’s hard to imagine why Riot would bargain with a union. After all, they’re under no legal compunction to do so. With no legal requirement and, at least for now, no total unionization of everyone who plays League, it’s unrealistic to hope that players could use a labor association to force Riot into bargain over restraints like the anti-streaming-other-games provision.

Antitrust Background Info

The Sherman Antitrust Act, the main statute governing antitrust law in the United States, makes illegal any contracts, combinations, or conspiracies that unreasonably restrain trade in a market. It applies to just about any market, including most sports.

To find whether something is an unreasonable restraint on trade, consider first what the relevant market is and what the restraint on it is and then ask a few questions. Does the restraint have significant anti-competitive impact in that relevant market? Does the restraint also have a legitimate pro-competitive purpose that outweighs its anti-competitive effects? Is the restraint reasonably necessary to achieve these or similar pro-competitive effects? If the anti-competitive impact outweighs the pro-competitive justification and isn’t reasonably necessary, well then you got yourself an unreasonable restraint on trade. And that’s illegal!

So how does this apply to sports in particular? Let’s look first at Smith v Pro Football, a case in which a former player sued the NFL for only letting him play for the team that drafted him, saying it was an unreasonable restraint on his ability to sign a better contract.

In that case, the court defined the relevant market as a player services market in the US between players who sell and teams owners who buy football playing services. The Canadian Football League and the then-extant American Football League didn’t count as part of the relevant market because they paid less, featured less skill, and were much less popular. The restraint was the draft, placed by owners on themselves as buyers but also impacting players’ earning potential. The court found this draft to be too anti-competitive and said that the claimed pro-competitive justification, competitive balance, just wasn’t enough (although later Supreme Court decisions changed this). As a result, the NFL draft as it existed back in 1968 was found illegal.

Let’s also look at North American Soccer League v National Football League, mostly because it’s a good example but also kind of because I’m amused that a video game league now calls itself the NASL too (except it’s the “Star League”). The issue in that case was an NFL rule prohibiting team owners from owning a team in any other sport because, in the NFL’s view, those sports competed with the NFL for disposable income and eyeballs.

In the court’s view the relevant market was the American sports capital and skill market. The restraints on trade were that team owners couldn’t own teams in the NFL or any other league and that the NASL had access to fewer potential sports entrepreneurs. The anti-competitive impact was significant because existing owners of sports teams already accounted for a large portion of the relevant market. The pro-competitive justification was that the NFL wanted its team owners to have undivided loyalty and confidentiality. But that wasn’t enough; the court ruled this restraint unreasonable.

So we have one case with a narrowly defined market where the buyers regulated themselves and another with a more broadly defined market with more buyers and sellers, both of which had restraints that were ruled unreasonable because of unreasonably anti-competitive impacts on players in the first case and other leagues in the second.

Applying Antitrust to Riot’s LCS

We can use these cases to get an idea of how the law might apply to Riot’s League of Legends Championship Series.

Choosing the relevant market is not always easy and has a huge impact on the outcome of an antitrust case. In this case, a court might define it in one of a couple different ways. The first could be a narrow player service market for players selling and teams or Riot buying League of Legends playing, perhaps only within the LCS itself. The second could be a broader player service market for players selling professional video game playing more generally to various teams, leagues, or game publishers. In both cases, the restraint prevents players from streaming certain other games as well as professionally playing them professionally, since playing professionally will at some point necessitate playing on stream.

The narrow definition seems similar to the case in Smith. The court there cared only about football playing, not sports playing generally. Just as it didn’t consider the CFL and AFL substitutions for the NFL because they pay less, have less skill, and are less popular, so non-LCS LoL events don’t count as substitutions for the LCS because they pay less, feature less skill, and are less popular. In this view, those other events don’t factor into the relevant market.

The anti-competitive impact of the restraint in this narrow definition is hard to gauge. It might not be significant, since it may impact the market for League of Legends playing only lightly. It does cut into the players’ earning potential, but not directly into their market for LoL playing. In that sense, it may be different from the restraint in Smith that was significantly anti-competitive because it directly impacted players’ earning potential within football itself. That said, a court could also consider the restraint significant if there were a chance that players could drive up the price for their LoL playing skills by threatening to play other games as well. But they could do that by playing those games instead of LoL rather than in addition to it.

A potential pro-competitive justification in the narrow case could be to help competitive balance, as in Smith. Although the Smith court didn’t accept that as a justification, the Supreme Court later did. With that justification for and smaller anti-competitive impact of the restraint, under this narrow market definition the restraint may be perfectly legal.

Now let’s try the second, broader definition. As in the NASL case, in which the relevant market was the sports capital and skill market in general rather than merely in soccer or football, the market here could be comprised of competitive gaming capital and playing skill in general; in other words, switch team owners in the NASL case for players here and you can see lots of similarities. Many of the current LCS players previously played other games at very high levels and many of the teams and leagues in pro gaming feature many games. The level of specialty required by many pro video games is nowhere near the level of specialty that pro athletes attain in their chosen sport. Looking only at football playing may have made sense in Smith, but being so narrow might not be reasonable here.

Using this broader view of the relevant market makes the restraint appear more onerous. Because preventing players from playing other games on stream means players can’t earn money streaming them or playing them professionally, opportunities for players in the broad video game playing services market are significantly reduced. This is much like the impact of the NFL’s rule in NASL, which drastically cut down opportunities for team owners in the broad sports capital and skill market. And it impacts other professional leagues and games as well, since they can’t use LCS players and therefore have fewer potential pro players, just as the NASL had fewer potential team owners because of the NFL’s rule. These restraints were enough to amount to significant anti-competitive impact in the NASL case. I would think the same would be true here.

By contrast, the pro-competitive justification with respect to this broader market is… well, I’m not sure. Maybe Riot would claim that this rule helps legitimize LoL as a sport or helps LoL keep the best talent and therefore garner more stream viewership and sponsorship and advertising, which could mean an infusion of money into the relevant market? I dunno about. Or, as in NASL v NFL, is the goal to have undivided loyalty? That wasn’t enough of a justification in that case and I don’t think it would be here either. I’d have to think that the anti-competitive impact would outweigh the pro-competitive justifications.

Antitrust in the LCS More Generally

Whether Riot’s original rule would amount to an unreasonable restraint on trade depends in large part on how the market is defined. I’m not sure whether a narrow or broader option is better. I could go either way on it. But that’s scary for Riot, or at least it should be. It’s much better for a business to be clearly in the green than to take a 50-50 chance that its rules are illegal.

And this antitrust analysis is limited only to a single rule. The LCS has a whole handbook of rules! In my view, Riot would do well to ensure that none of them have antitrust unreasonable restraint implications; the wiggle room before a rule amounts to an unreasonable restraint may be too small. Ironically, Riot’s exclusive control of League of Legends may actually mean that it has less control of the relevant market for professional video game playing services than it otherwise might.

But here’s the other thing about that control: League of Legends is a copyrighted, exclusively controlled video game work. Traditionally the law grants copyright owners a lot of leeway over how they use their works. Does antitrust law even apply to a services market built on a copyrighted and exclusively controlled video game? I’m not gonna tell you I know. I don’t think anybody does. Every other sport is just a sport; the NBA doesn’t exercise exclusive control over the game of basketball, for example. As far as I know, this is a new question.

I plan to spend a lot of time thinking and researching about this, but for now my gut reaction is that a copyright in a game shouldn’t shield a market for player services in that game from antitrust law. I guess I don’t really know why it would. But eh, like I said, I got some pondering to do.

Analyzing the Updated Contract

As I said at the start, the contract provision that prevented League of Legends Championship Series players from streaming certain games other than LoL has already been changed. There was a massive public outcry, Riot heard it, and they altered their policy. Good on them! More game companies should be as responsive.

The new rule is, as RiotMagus wrote, that “teams and players can’t accept sponsorship from other game companies to promote other titles. Besides that, they are free to stream any games they want.” That certainly helps mollify fans and players. From a public relations perspective, it escapes the pitfalls that Riot is largely so good at avoiding. But I’m not sure this change makes the rule any less legally problematic.

It certainly doesn’t do much to change the discussion as to whether it’s an illegal non-compete agreement. A player who’s contractually barred from promoting a game or accepting sponsorship from other game companies would have a pretty tricky time competing in that game professionally. So the issue about Riot preventing these players from playing other games professionally is still there.

The antitrust line of thought seems similarly unchanged. The narrow view may still be unlikely to amount to an unreasonable restraint. Also still in existence is the only argument that the restraint is too anti-competitive in the narrow market, namely that the effective prohibition on playing other games professionally may make salaries in the LCS harder to change through lack of competition. And the calculus under the broader view seems the same as well, since the rule still prevents players from playing other games professionally and getting money from other game companies its competing game and prevents other game companies and leagues from being able to use a large chunk of the pro gaming player market.

Like I said, it’s great that Riot changed the rule! But to ensure safety against antitrust lawsuits, they might need to consider changing it yet again.

The Dreaded TL:DR

It’s risky to boil things down too much and I probably shouldn’t be doing this, but I’ll try anyway:

1) The original contract requirement prohibiting players from streaming certain other games may or may not have amounted to an illegal covenant not to compete, although the better bet is that it did. If so, it was void. But since there’s no case law on this yet, deciding whether it actually was a non-compete is pretty tough. Crapshoot time!

2) If it is enforceable, then breach of it by a player could result in a lawsuit by Riot that ends up with that player being prevented from playing the prohibited games anyway and potentially paying money damages to Riot as well.

3) Because companies only have a legal obligation to bargain with unions that represent employees and because players in the LCS are instead mere independent contractors, it’s unlikely that labor law would have an impact on Riot’s ability to assert restrictions on players.

4) The restraint on trade created by the original rule may or may not have amounted to an unreasonable restraint under federal antitrust law. Whether it did depends in large part whether the relevant market is defined narrowly as a player services market for playing League of Legends in the LCS or broadly as a player services market for playing video games professionally in general. If the relevant market is narrow, the rule was more likely not to have amounted to an antitrust violation; if the market is broad, then the rule was more probably a violation. But as with the enforceability of the contract in 1), it’s hard to know for sure. Courts have never had to deal with a sports antitrust question with respect to a player services market controlled exclusively by a copyright owner.

5) The kinder updated rule is great from a public relations and player freedom point of view, but the legal arguments over whether it amounts to a non-compete agreement and an unreasonable restraint on trade seem to be mostly the same.

Again though, a lot of this is new! It’s an exciting time for an attorney like me working in these fields, but it’s also an uncertain one. This article represents my best guesses, but I can’t be sure those guesses would hold up in court because there are no direct court case examples to draw from. We’ll only know for sure once issues like these reach the courts. Sooner or later, they will.

David Philip Graham is an entertainment and video game attorney with significant expertise in the contracts, entertainment, and competitive gaming. He can be found via his website at dpgatlaw.com and contacted by email at david@dpgatlaw.com.